Many business owners feel uncomfortable around the finances and tend to ignore them, or leave their records in the shoebox to be considered once a year. This is fatal, and the reason that so many businesses fail.
A recent introduction of the GST (goods and services tax) means that for many businesses, the shoebox approach to accounting records is no longer possible. This is one of the few positives of the GST for small business, as compulsory GST compliance will force improved record-keeping.
Accounting records and reports are required for good management inside the business and statutorily required for various legal reasons.
Why keep records
There are several reasons for you to be compelled to keep records, whether your business operates as a sole trader, partnership or company. These are to determine the following:
- Your income tax liability
- Who owes money to your business (your debtors)
- To whom your business owes money (your creditors), and
- The assets owned by your business
As well as the legal requirements to keep records, which might seem onerous, there are many other good business reasons for you to keep records.
How to manage accounting records
The best accounting system depends on the type and size of your business, how many staff are employed, and who does the accounting. For example, a diary or list of expenses and receipts is a perfectly acceptable accounting system and no one can knock it, provided of course it works. Whatever the system is, it should be able to record data and provide a basis for summarising to help you produce your accounting books and reports.
If you’re going to use a computer-based accounting system, you need to have input into how the system is set up so you won’t only be sure that the system suits your business, but also that you can understand and develop reports from it.
When thinking of accounting records, the following acronym is helpful. Print it out onto a sheet of paper and put it in your office/kitchen – wherever it is that you actually do your bookkeeping.
Bank: Put all money, in and out, through the bank account.
Obvious: Leave a clear “paper trail” from the source documents.
Organise: Clearly define the who, what, when and where of your accounting system.
Keep it simple, stupid (KISS): A complex system leads to confusion and misuse.
Separate business and private finances/transactions.
It’s a sound business advice, right?
Efficient Accounting
An efficient business accounting system will focus on the sources and details of both the cash receipts and cash payments in a period. What’s the trouble button? Bookkeeping should be structured so that the business can measure its viability by comparing five key indicators at regular intervals (monthly or quarterly). These are:
- Turnover figures or revenue
- Debtor figures (What is owed to the business)
- Creditor figures (What business owes to others)
- Stock value
- Overdraft level or cash in the bank level
When changes in these indicators start turning from positive to negative, it’s time to take action.
Manage all your records with the help of the best accountants in Australia today.